The Heavily Discounted Value of a University Degree. What Has Happened?


When I graduated from a prestigious public university in California, my future was so bright I had to wear shades. Even with a seemingly worthless degree in the Humanities and Social Sciences, I managed to quickly land an entry-level management position at Intel Corporation, which became a rocket ride into the top marketing unit in the company, heavily populated with Ivy League MBA’s.  I also gained extensive international business experience which fueled my later career.  My former students know that I have repeatedly said in class and in student meetings that this would simply not happen today.  Employers today are swamped with applications from literally hundreds and thousands of graduates with credentials far better than mine at that time.  I know of one top graduate from UBC Faculty of Management from a few years ago, who entered the job market with very high hopes and expectations, but is still struggling to move beyond low paying hourly employment.  What has happened?

Robert Reich, Former U.S. Secretary of Labor in the Clinton Administration, and currently Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley, details the problems with the economic value of university degree.  The points Reich makes are as relevant in Canada as in the United States.  “People with college degrees continue to earn far more than people without them. And that college “premium” keeps rising.  Last year, Americans with four-year college degrees earned on average 98 percent more per hour than people without college degrees.  In the early 1980s, graduates earned 64 percent more. So even though college costs are rising, the financial return to a college degree compared to not having one is rising even faster.”  So far so good.

Reich concludes, “But here’s the qualification, and it’s a big one. A college degree no longer guarantees a good job. The main reason it pays better than the job of someone without a degree is the latter’s wages are dropping,”  The value of a degree is actually decreasing.  This is the same economic inequality problem affecting all other aspects of the economy.  The very best of our graduates, those who are the most resourceful and motivated, will manage to succeed, but the vast majority will be on a slippery slope.  I have seen this in my time at UBC, and most students can look around and see the problem among their classmates.

Reposted from Salon, Tuesday, November 25, 2014:

Robert Reich: College gets you nowhere

The former secretary of labor examines why a degree no longer guarantees a well-playing job

Robert Reich: College gets you nowhere

 

This is the time of year when high school seniors apply to college, and when I get lots of mail about whether college is worth the cost.

The answer is unequivocally yes, but with one big qualification. I’ll come to the qualification in a moment but first the financial case for why it’s worth going to college.

Put simply, people with college degrees continue to earn far more than people without them. And that college “premium” keeps rising.

Last year, Americans with four-year college degrees earned on average 98 percent more per hour than people without college degrees.

In the early 1980s, graduates earned 64 percent more.

So even though college costs are rising, the financial return to a college degree compared to not having one is rising even faster.

But here’s the qualification, and it’s a big one.

A college degree no longer guarantees a good job. The main reason it pays better than the job of someone without a degree is the latter’s wages are dropping.

In fact, it’s likely that new college graduates will spend some years in jobs for which they’re overqualified.

According to the Federal Reserve Bank of New York, 46 percent of recent college graduates are now working in jobs that don’t require college degrees. (The same is true for more than a third of college graduates overall.)

Their employers still choose college grads over non-college grads on the assumption that more education is better than less.

As a result, non-grads are being pushed into ever more menial work, if they can get work at all. Which is a major reason why their pay is dropping.

What’s going on? For years we’ve been told globalization and technological advances increase the demand for well-educated workers. (Confession: I was one of the ones making this argument.)

This was correct until around 2000. But since then two things have reversed the trend.

First, millions of people in developing nations are now far better educated, and the Internet has given them an easy way to sell their skills in advanced economies like the United States. Hence, more and more complex work is being outsourced to them.

Second, advanced software is taking over many tasks that had been done by well-educated professionals – including data analysis, accounting, legal and engineering work, even some medical diagnoses.

As a result, the demand for well-educated workers in the United States seems to have peaked around 2000 and fallen since. But the supply of well-educated workers has continued to grow.

What happens when demand drops and supply increases? You guessed it. This is why the incomes of young people who graduated college after 2000 have barely risen.

Those just within the top ten percent of college graduate earnings have seen their incomes increase by only 4.4 percent since 2000.

When it comes to beginning their careers, it’s even worse. The starting wages of college graduates have actually dropped since 2000. The starting wage of women grads has dropped 8.1 percent, and for men, 6.7 percent.

I hear it all the time from my former students. The New York Times calls them “Generation Limbo” — well-educated young adults “whose careers are stuck in neutral, coping with dead-end jobs and listless prospects.” A record number are living at home.

The deeper problem is this. While a college education is now a prerequisite for joining the middle class, the middle class is in lousy shape. Its share of the total economic pie continues to shrink, while the share going to the very top continues to grow.

Given all this, a college degree is worth the cost because it at least enables a young person to tread water. Without the degree, young people can easily drown.

Some young college graduates will make it into the top 1 percent. But that route is narrower than ever. The on-ramp often requires the right connections (especially parents well inside the top 1 percent).

And the off-ramps basically go in only three directions: Wall Street, corporate consulting, and Silicon Valley.

Don’t get me wrong. I don’t believe the main reason to go to college – or to choose one career over another — should be to make lots of money.

Hopefully, a college education gives young people tools for leading full and purposeful lives, and having meaningful careers.

Even if they don’t change the world for the better, I want my students to be responsible and engaged citizens.

But when considering a college education in a perilous economy like this, it’s also important to know the economics.

 

Robert Reich, one of the nation’s leading experts on work and the economy, is Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. Time Magazine has named him one of the ten most effective cabinet secretaries of the last century. He has written 13 books, including his latest best-seller, “Aftershock: The Next Economy and America’s Future;” “The Work of Nations,” which has been translated into 22 languages; and his newest, an e-book, “Beyond Outrage.” His syndicated columns, television appearances, and public radio commentaries reach millions of people each week. He is also a founding editor of the American Prospect magazine, and Chairman of the citizen’s group Common Cause. His new movie “Inequality for All” is in Theaters. His widely-read blog can be found at www.robertreich.org.

 

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